Historically, working capital financing had been a one transaction process (from vendor to buyer, or supplier to customer) and usually involved only a single balance sheet or asset class. This method of capital financing is explained in connection with FIG. 1. FIG. 1 illustrates a traditional vertically integrated manufacturing processes. Raw materials 10 from a supplier were delivered to a factory 20 which produced finished goods 30 from the raw materials 10. From a financier's point of view, the only risk it had to understand was whether the manufacturer 20 could profitably transform the raw materials 10 into finished goods 30 that consumers wanted to and could afford to buy. Furthermore, this model only involves financing a single entity, the manufacturer 20.
In today's global economy, an intricate web of interdependent players make up the international supply system, requiring more sophisticated methods of coordination and finance. This complexity challenges the current methods and assumptions, making it more difficult for the financier to gauge the risk involved.
Furthermore, in the conventional supply chain financing, individual decisions are made at the enterprise level regarding the working capital finance structure to support operations. Each company in the supply chain has varying degrees of incentives to pay late and collect funds early, and to push as much inventory onto the balance sheets of its counterparties.
A combination of three emerging technologies has enabled the development of the present invention and its application to supply chain financing. These technologies are Supply Chain Management (SCM) techniques, electronic commerce (EC), and financial market technology. SCM has been defined as the management of flows, including materials, information, and money. Before SCM techniques were introduced, the size of buffer stocks maintained by a manufacturer or supplier were large, and even then, these buffer stocks often could not accommodate the peak seasonal requirements of customers. The introduction of SCM has smoothed out material flows, and this in itself has reduced the working capital expense associated with the high inventories of yesterday.
The second enabling technology that supports the development of the present invention is the transformation of electronic commerce (EC). While EC has been used for many years, start-up costs have been quite high, and many potential applications have therefore been excluded. With the development of company intranets and browser-based applications, new uses of business to business electronic commerce are burgeoning. Savvy financial institutions (e.g., banks) are migrating their information-based products from proprietary in-house developed software to browser-based intranet applications. Accordingly, these savvy institutions are now positioned to access their clients'supply chain data from their clients'electronic commerce and enterprise resource planning (ERP) systems in order to provide financing based on those data.
The third factor that permits the optimization of the present invention is the growth of investor appetite for securities linked to specific cash flows. This form of investment is distinct from investments in securities linked to the risks and rewards of companies themselves, such as equity and debt securities.
In light of the problems associated with the conventional methods of supply chain financing, and in view of the emergence of the above described enabling technologies, it is an object of the present invention to reduce the finance costs associated with the supply chain and to free the movement of goods across the balance sheets of supply chain partners.